Group personal pensions
Some employers offer these schemes. They build up a personal fund for each employee which is converted into an income when you retire. They are a type of money purchase pension. For more information download our Pensions booklet from Publications, where you can also order it online.
The scheme is run by the pension provider that your employer chooses, but it is an individual contract between you and the provider. The provider claims tax relief at the basic rate and adds it to your fund. If you are a higher-rate taxpayer, you will need to claim the additional rebate through your tax return.
How does it work?
The pension fund builds up using your contributions and, where they are made, your employer’s contributions, investment returns and tax relief. It helps to think of money purchase pensions as having two stages:
Stage 1
The pension fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. Remember though that the value of investments may go up or down.
Stage 2
When you retire, you can take a tax-free lump sum from your fund and use the rest to secure an income – usually in the form of a lifetime annuity.
The amount of pension income you’ll get will depend on:
- how much you pay into the fund;
- how much, if anything, your employer pays in;
- how well your investments perform;
- the charges taken out of your fund by your pension provider;
- how much you take as a tax-free lump sum;
- annuity rates at the time you retire; and
- the type of annuity you choose.
For more information about annuities and other retirement options, see Retirement options.
Use our Pension calculator to estimate the amount of pension income you could get when you retire. This is worked out from the level of regular contributions that you choose to pay into a personal or stakeholder pension. Just enter the amount you can contribute and it will calculate what your pension fund could be worth if it grows at certain rates each year.
The figures you see in the Pension calculator are estimates - they are not guaranteed. The actual pension income you receive will be affected by future changes in things like interest rates, inflation and investment growth.
What you need to think about
Think carefully if you are planning not to join your employer's pension scheme. It is not usually a good idea to turn down a pension scheme to which your employer will contribute on your behalf.
Changing jobs
If you change jobs, your group personal pension is usually automatically converted into a personal pension and you continue paying into it independently, but you should check whether your new employer offers a pension scheme. You may find you'll be better off joining your new employer's scheme, especially if the employer contributes. Compare the benefits available through your employer's scheme with your group personal pension. If you decide to stop paying into a group personal pension, you can leave the pension fund to carry on growing, but check whether there are extra charges for doing so.